Sterling fell against the dollar yesterday, on increased risk aversion selling and expectation of fall in UK interest rate after the decision from the FOMC. US Federal Reserve had cut its main interest rates, citing the weakening economic outlook and increasing downside risks to growth. The chances of further rate cuts remain open, according to the expectation of economists.

Comments from the Bank of England governor Mervyn King, added to expectations that there will be a February rate cut, eroding the currency's yield appeal.

In a survey of 58 economists polled by Reuters all forecasted a cut to 5.25 percent in February, and affected the sentiments of traders.

In a grave effort to prevent a global market meltdown in financial markets and a possible recession in the US economy, the Fed lowered its overnight lending rate by 75 basis points to 3.50% - a rare move between formal meetings of the central bank's policymakers. This has been the largest cut in the fed funds rate since 1990.

But the expectation of weakness in the economy, as indicated by data from different sectors, is weighing on the cable.

The unexpected fall in UK retail sale in December increased the expectation of interest cut, and also pressurized the cable. According to the data UK Retail sales fell 0.4 percent on the month of December against the expectations for a rise of 0.2 percent.

According to the Royal Institution of Chartered Surveyors, British house prices fell in December at their fastest pace since the early 1990s. The data again hardened expectations of an interest rate cut in an attempt to prop up a slowing economy.

Sterling had crossed the psychological level $2 last month after the comments from the policy makers indicated they were united on a rate cut and has been trading below the $2 mark.

Last day in spot trading, sterling closed at 1.9566 (1.9613) against the dollar, after trading in the range 1.9643 – 1.9462. 

Medium term outlook active trading below 2.0350 is the sign of weakness. More weakness can be expected below 2.0140. Supports are 2.0080, 1.9875 1.9652, 1.9600, 1.9466, 1.9248. Resistances are 2.0450, 2.0680 

Last day DGBP traded in the range 195.50 -194.00 and closed at 194.75. 

Sterling daily chart (spot)

TECHNICAL OUTLOOK (Intra-day)

DGBP (Mar)    - Bullish above $ 195.06; bearish below $ 194.52

DATA TO WATCH

2008 January 24

Dubai time = GMT + 4 hrs